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Evaluating feasibility for on-site generation with Combined Heat and Power

The economics of CHP need to be considered before the start of any project. Here’s what you need to know.

Combined Heat and Power (CHP) or Cogeneration, as it’s also known, can offer a reliable source of resiliency and power and heat generation on site for your business. Investing in on-site energy production can require a good deal of analysis and internal agreement for your business. Choosing a partner who is capable of helping you to navigate and evaluate all the proper criteria can simplify the process and lead to a more efficient and lucrative investment that also provides energy resiliency to your operations.

A Combined Heat and Power (CHP) project can add resilience and cost benefits to your operation, so you’ll want to evaluate the economics carefully and thoroughly to obtain the required investment and understand the true benefit to your business. This means maximizing the asset’s potential for energy savings and reductions in carbon emissions. A high-performing CHP system will create a significantly positive impact on the project’s return on investment (ROI).

The evaluation for installing a CHP system in a site’s building or process is usually carried out in a detailed economic feasibility study.

How to complete an economic feasibility study

An economic feasibility study should be as informed as possible before completion. The earlier the study can be completed, the better. Allow adequate time to gather the required information, particularly when it comes to the site’s energy consumption data.

1. Energy consumption data

Establish how the site currently consumes its electrical and thermal energy. This helps to accurately size the CHP system to meet existing loads, so energy savings can be maximized.

An undersized CHP system will operate at full load but it will not achieve the potential energy savings and carbon emissions reductions. Oversized systems fail to run economically and are inefficient at part-load.

The site’s energy data can be gathered from the following:

  • Energy Insight Products
  • Building Management Systems
  • Current and previous years’ energy bills
  • Meter readings from the supplier
  • Short-term monitoring/metering

2. Energy load profiles

The energy data is then used to understand how the site uses energy at different times across the day, week, month, and year. The highest and lowest demands that the cogeneration system will need to meet are recorded and checked as this will help to calculate the site’s load profiles.

Load duration curves can be produced by plotting the number of hours at which specific loads are experienced. These are useful to examine if the recommended minimum 4,500 hours per year heat load is available, ensuring the CHP can run for the maximum number of hours.

3. Heat-to-power ratio

The load profiles are then used to calculate the site’s heat-to-power ratios – a measure of the site’s heat and electricity power consumption. A heat-to-power ratio of around 1.5:1 is a good indication that there is a suitable level of on-site energy demand for cogeneration.

4. Initial suitability checks

The following information also needs to be factored in when calculating the correct size of the CHP system:

  • The site’s current electricity and gas rates – prices needed for cost calculations
  • Is existing equipment operating efficiently?
  • Are there any energy efficiency/demand side measures being considered on site that could affect the final energy demands?
  • Is the site planning a major expansion in the near future?
  • Is the local network able to support a CHP installation?
  • Fuel availability

5. Indicative checks

The main financial indicator for CHP viability and return on investment is spark spread. This is the difference between the incumbent electricity price and the cost of the fuel (usually the natural gas price) used to generate on site CHP electricity. A spark spread of between 4 and 8 is a good starting point for CHP viability on a site.

6. CHP sizing

There are a number of options to consider when sizing the CHP output. These include:

  • Baseload operation
  • Load following, tracking or modulation
  • Maximum electrical or heat load output

Each alternative should be carefully examined and the load profile data should be accurate to ensure the best financial return.

7. Practical and environmental considerations

The project’s estimated capital cost expenditure and operating costs will need to include such factors as the cost of the installation work and the annual maintenance costs. Check:

  • There is space on site for installation, and for maintenance access
  • Fuel supply is available and at the correct capacity
  • The local electricity grid can support generation
  • Electrical and heating connections are in close proximity

Consider the environmental aspects of the CHP system installation. Will it be subject to planning conditions and environmental regulations regarding noise or emissions?

8. Financial report

The financial calculations should complete the feasibility study and confirm whether or not CHP is financially viable. Estimated costs and the expected ROI in terms of anticipated payback period should be provided. With accurate data and effective communication, financial sign-off should be much more straightforward.

The production of an effective CHP economic feasibility study requires the following:

  • An understanding of the existing thermal and electrical needs of the site.
  • Measurement of the current thermal and electrical generation and consumption in order to give an awareness of the current energy consumption pattern.
  • The generation of a load profile from this data.
  • Calculation of the spark spread.
  • Awareness of what funding or support there is available from various sources such as incentives.

All of the criteria to evaluate may appear daunting, but choosing a partner who can help to navigate the process can simplify and streamline your choice to install an on-site CHP for cogeneration, providing resilience and cost savings to your business. Contact us to speak with a local expert about the benefits of CHP and available incentives in your area.